Will summer hits warm DVD sales?

Sales of film titles slows, but rentals rise

When even “The Dark Knight” is expected to sell fewer discs than earlier blockbusters, it’s clear that something is going on.

For the first half of the year, the homevid biz was holding steady despite a tough economy.

But sales started to lag as weeks, then months, went by without the arrival of a major B.O. hit on disc. (“National Treasure 2,” debuting May 20, was the last one with a domestic B.O. topping $100 million.)

The vid biz is looking for the crop of summer smashes to boost fourth-quarter revs, but theatricals do not pack the same punch they did at the height of the DVD market.

Homevid divisions are working to combat softening sales: During the crucial year-end period, they will be ramping up TV and catalog offerings; pushing Blu-ray any way possible; and promoting embedded digital copies as a purchase sweetener.

The jury’s still out on whether these efforts — or the boffo slate — will be enough to stave off another annual decline.

Rentals are up, but that may mean fewer consumers are buying DVDs in a weak economy. However, sales of catalog and TV series on DVD are robust, suggesting that sagging DVD movie sales may be due to the maturity of the business — and to the quality of the titles.

Retailers and distribs are hoping the summer hits will counteract that.

“Sex and the City” is the first major summer hit to arrive on Sept. 23, followed by “Iron Man” the next week and a steady stream until the end of the year. Every major summer movie is expected to arrive on disc before the holidays, including “The Dark Knight,” which is expected Dec. 9.

Studios rely on homevid coin to cover rising production and marketing costs, and homevid execs believe Blu-ray will eventually boost that equation, but in the meantime, the bottom line is getting squeezed.

“None of the studios are making their marks,” an industry research analyst states. “Week to week, there have been double-digit declines.”

This analyst called the week ended Aug. 17 “one of the worst I’ve ever seen in this business.” The top theatrical release that week, which fell during the Olympics, was “Smart People” with less than $10 million at the domestic box office.

Even the most bullish execs will concede this summer’s light DVD slate exacerbated declining new release fortunes. The ongoing deterioration is creating a ripple effect throughout the industry.

Part of this summer’s slump is a domino effect from the weak spring. There was no big hit like “300,” which sold well when it arrived on disc late last July. “Harold & Kumar Escape From Guantanamo Bay,” “Step Up 2″ and “21” are among the bigger recent releases during a traditionally slow period for the vid biz.

But even before the summer, new release sales were trending downward. According to analyst Tom Adams, “there was another decline, and a fairly substantial one at that,” for theatricals debuting on disc the first half of the year. He says the average overall perf was down 12% in first half, and he expects further declines through the end of the year, although he expects the sheer number of year-end releases to offset individual shortfalls.

“Certainly there are great titles out there,” says Paramount Home Video topper Kelley Avery, who is preparing “Iron Man,” “Indiana Jones and the Kingdom of the Crystal Skull” and “Kung Fu Panda” for their disc debut, along with other goodies.

She points out that big hits tend to lift the overall DVD biz because consumers often buy more than one disc at a time, giving studios “a great opportunity to draft great catalog and TV series off theatrical hits.”

Execs pooh-pooh the notion that cash-strapped consumers won’t buy as many discs as they might during more flush times, arguing that DVD and Blu-ray discs are a bargain compared to many entertainment alternatives. Adams studied the effect of past recessions and says they never harmed home entertainment. During the previous downturn in 2001, DVD sales actually exploded.

“Entertainment, interestingly enough, is considered essential,” he says. “Overall spending is not squeezed down with all the choices. It probably keeps it flat.”

“We’re exactly where we thought we would be,” says Ron Schwartz, g.m. and exec VP of Lionsgate Home Entertainment. “This industry continues to remain extremely resilient, even in tough times.”

Adams acknowledges some consumers might hold off converting to Blu-ray because of the high cost of entry (the lowest-priced Blu-ray player is about $300, compared to $25 for a conventional DVD player) — but format sales continue to grow at projected rates.

His firm projects that 33 million Blu-ray discs will be sold by the end of year, a sizable gain from the 5 million discs sold a year ago when the high-def format battle was still under way. Studio execs project between $750 million and $1 billion in Blu-ray sales this year, with the majority coming in the fourth quarter.

To boost Blu-ray further, many studios are planning to promote BD Live features on their discs. Disney has several major Blu-ray bows with those social networking options, starting with “Sleeping Beauty.”

Blu-ray could make or break the year for homevid divisions, but even if it doesn’t lift industry fortunes in 2008, homevid execs expect renewed vigor in the coming years. In the meantime, they’re pumping out catalog and TV series by the score.

Another “Casablanca” reissue or first season of “Nash Bridges,” anyone?